In the current real estate recession many of my new clients are investors who purchased too many residential rental properties too late in the market cycle. Most of these people are frustrated because their mortgage lender will not negotiate to adjust payments until the market improves. They also fear the lender’s active pursuit of deficiency judgments if there is a foreclosure.This past week I discussed the current mortgage and real estate situation with a man with over 25 years in the mortgage lending and banking business. What he told me may interest some of you.He explained that most people believe that their mortgage lender is the neighborhood bank or mortgage company with whom they placed the mortgage initially. In today’s global economy, once a loan is issued the mortgage note is then packaged with other mortgages and then sold to much larger financial institutions. He said that large hedge funds buy millions of mortgage debt and then turn the mortgages over to another company for servicing.
These large hedge funds cannot negotiate mortgage adjustments with individual borrowers; they cannot make separate deals with each person who claims financial trouble. The large mortgage service companies adopt policies that apply to everyone and then uniformly apply these policies. Most often, if you are not already in default, the mortgage service company has no program to help you.
Although some of the hedge funds and service company go for deficiency judgments after foreclosure, most do not. These large financial institutions which hold most of the residential mortgages are not set up to litigate deficiency judgments because the ability to get a deficiency and the amount of the deficiency is different in every case. The individual I spoke too also pointed out that in “bank think” a person who cannot pay his mortgage probably is not financially able to pay a deficiency judgment so it does not pay the mortgage service company to pay additional legal fees to get deficiency judgments.